Even though it faces difficult comparisons, Netflix continues to grow strongly.
Netflix (NASDAQ:NFLX) today reported $7.34 billion in second-quarter revenue, exceeding analysts’ expectations of $7.32 billion. To do this, income increased 19 percent year over year throughout the time, with subscriber numbers reaching a new high. The company’s great performance during a period when it was up against an extremely difficult year-ago comparison demonstrates how strong the streaming-TV company’s momentum is.
Here are some crucial lessons from the quarter to fully comprehend Netflix’s momentum.
During the quarter, Netflix added 1.54 million new customers. This exceeded management’s expectations of 1 million new members over the term.
Netflix’s ability to add members every quarter this year, despite a dip in demand last year as consumers sought refuge at home, implies that the firm is still early in its growth story. The total number of subscribers in the second quarter was around 209 million, up from around 193 million in the previous quarter.
Subscriber growth was weak compared to previous quarters, gaining only 8.4 percent year over year, reflecting Netflix’s difficult year-ago quarterly comparison when the firm attracted 10 million new members. In each of the previous four quarters, rates ranged from 13.6 percent to 27.3 percent. However, investors should take heart from the fact that the business is now forecasting a reacceleration in subscriber growth as the impact of difficult year-ago comparisons fades. Management predicted that third-quarter subscriptions would increase by 9% year over year to approximately 213 million. This equates to 3.5 million new members expected during the quarter.
In Netflix’s second-quarter shareholder letter, management stated, “COVID has produced some lumpiness in our membership growth (greater growth in 2020, slower growth this year), which is working its way through.”
If you’re asking why revenue climbed so much faster than subscribers in the second quarter, consider that the company is also benefiting from increased average revenue per membership. This important measure improved by 8% year over year.
The scalability of Netflix’s business strategy continues to pay off. Its operating margin increased three percentage points to 25.2 percent year over year. Operating income increased from $1.4 billion a year ago to more than $1.8 billion this quarter as a result of this.
Despite a negative $175 million in free cash flow for the quarter, management forecasts breakeven or better free cash flow for the whole year. Given how much the company’s spending has increased in recent years, this is an astounding view from management (driven primarily by investments in content). Netflix is a streaming service. Brief News from Washington Newsday.